- 1). Decide what type of brokerage account you want. If you are just starting out, you may want to open an account to buy shares in a company at your bank. The fees are usually low and you will be dealing with someone you already know. Alternatively, you might try a discount brokerage. They execute your stock orders but offer only limited additional services, if any. A traditional brokerage firm will offer a wide range of services but is considerably more expensive.
- 2). Open an account through your bank or with a broker. You can get the application form online in most cases. However, you will need to enclose a check (that is, deposit money) to actually open the account. When you do, ask for a list of all fees and charges that go with buying shares in a company so you don’t get any unpleasant surprises. Although you can do all of this through the mail or by phone, it’s better to open your account in person if you can. Building a relationship with your broker can pay off in the long run.
- 3). Develop an investment strategy to guide you in choosing companies to invest in. You may want to consider companies you already know and like, perhaps because you are a satisfied customer. Another approach is to concentrate on firms in a particular industry especially the one you work in. For newcomers to buying stock, it’s a good idea to avoid sophisticated alternatives like playing the options market. Keep it simple until you have experience.
- 4). Research a company before you invest. Find out how the company’s stock has performed over the last 5 years and especially the last 12 months. In addition to the stock price, you want to know the Price/Earnings (P/E) ratio. This number tells you how much the stock costs compared to how much the company earns per share. A low P/E ratio may indicate the stock is undervalued (and the reverse, of course) but you’ll need to know more. Sometimes a new company will have a high P/E ratio (low earnings) because they are in a start-up phase and the stock is priced relatively high because the company’s prospects are especially good. If you are investing for the long term find out how much the dividends are on the stock. Finding this information isn’t hard—most of it is listed in the daily stock quotes in your local newspaper and there are hundreds of websites that also provide up-to-date information on stocks.
- 5). Study the company itself. Go to the company website and read up on them (most provide a lot of information under a category like “Investor Information”). Don’t forget to take into account events that might affect a company. The overall economic conditions, changes in government regulations and new technology in an industry can all affect a company’s prospects.
- 6). Buy shares in a company once you are satisfied it’s a good risk. After you’ve made an investment, keep track of what’s going on. Stay aware of changes in the company (subscribing to any online company newsletters is one good way of doing this) and keep track of events in the industry and the business world on a regular basis.
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